process valuation

www.FITT-for-Innovation.eu

Valuation

FITT

(Fostering Interregional Exchange in ICT Technology Transfer)

2 | February 2010 Valuation

Process “Valuation” in general

Valuation is an essential process in order to achieve the optimal exploitation

of protected IP assets.

Valuation, as a process, consists in choosing one or several dedicated

methods in order to assess the value of an asset.

A value is not a price. Value is subjective, in the sense that value can differ

depending on the direct environment, whereas a price is an objective

information.


Process “Valuation” in general

In the activity of IP Management,

valuation is perceived as a technology

and business focused activity.

(see activity “IP Management”

for more details about this

triangulation)

VALUATIONVALUATION EXPLOITATIOEXPLOITATIONN

PROTECTIONPROTECTION

Business

LegalTechnology

IP Management


TTOs and valuation – Why?

Reasons to conduct valuation activities are diverse :

Company valuation Taxation planning External reporting

IP sale & licence AccountingIP exploitation

& management

Capital Raise

Dispute

resolution/Litigation

support

Internal management

& Strategy


Quantitative Valuation Approaches

There are 3 major types of valuation approaches

Market Approach

Mesures the value of an intangible asset based on what purchasers on the market would have paid for a reasonnably similar asset

Cost Approach

Mesures the value of an intangible asset by taking into account all of the costs invested in the intangible asset (building, replacement and/or reproduction costs)

Income Approach

Mesures the value of an intangible asset by reference to the Net Present Value (NPV) of the expected benefits over the remaining life of the asset


Market Approach

Value is determined using market-observable multiples

Parametrization is based on recent market transactions for comparable assets

Multiples are based on

Sales, Profit Margins, …

Historic

purchase

price

Observed

sales

x3 Price are

converted

into multiples

of earning Forecasted

sales

Derived purchased

price

x3

From price (observed)to value (estimated)

Value


Cost Approach

Cost Approach can be based on historic and/or replacement costs

Historic costs

tInflation-ajusted

costs/periods

Value


Income Approach

Based on the actualized net present value of future cash-flows

Period 1 Period 2 Period 3 Period 4

t

Present Value Sum of future Cash Flows=

Value


Parts of the process

In the framework of the FITT project, valuation process is apprehended through practices and cases

« Valuation Methods » exposes the nature of the various quantitative valuation approaches within a global practice

« Cost Approach » details a case dedicated to a trended historical cost approach to valuation

« A valuation tool » exposes a specific tool developped internally at Tudor which simplifies quantitative valuation procedures


Practice « Valuation methods »

Quantitative valuation methods can be regouped in 3 categories

Cost approaches

Income approaches

Market approaches

Each have their own benefits and drawbacks, which are detailed in the practice


Case « Cost Approach »

This case is based on a real-world experience dedicated to estimate the value of an IP asset composed of a patent portfolio

Methodology exposed in the case details how to conduct a trended historical cost approach, based on a 6 steps procedure


Case « Valuation Tool »

A valuation tool was developped internally at Tudor in order to facilitate valuation excercises

This tool assists not only the valuation activity for all quantitative valuation approaches exposed in previous practice, but also helps the TT officer choosing among valuation methods based on the nature of available information

The tool is presented in this case, alongside the major hypothesis that were used in order to develop it


Suggested Readings

Link to code book:

• intellectual property, intellectual property protection, intellectual property

rights, valuation, licensing

process valuation

Documents